The High Cost of Waiting

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I was driving in Phoenix the other day and went by a building I pass by frequently. It’s a beautiful office building that sold for $40 million in 2001 or 2002. The reason I remember it so vividly is because I remembered the back story on the building.

Do you remember the last time we have a real estate downturn? For me it was in the late 1980’s and early 1990’s. I was working for a real estate developer as a CFO (chief financial officer) in the late 1980’s and the market just stopped dead in its tracks in Reno, NV. We couldn’t get funding anymore. Phoenix was crashing, banks were closing, the sky was falling.

That’s when the Resolution Trust Company came in and took over the REO (real estate owned) in Phoenix. People said it was the end of real estate investment in Phoenix. No one would ever buy here again because so many people had lost so much money.

In fact, I remember a client I meant in 1996. She was a real estate broker who made a lot of money helping her clients make smart real estate investments. Yet, she invested all her money in stocks. Why? I asked her.

She said it was because she’d lost so much money in 1991. At that time, she owned 16 single family homes in Phoenix, all fully rented and with a positive cash flow. And the market dropped. She wanted to sell before it went down anymore. She had a negative net worth on her houses. So, she took a huge loss and vowed never to get caught again. Of course, those houses have probably tripled in value since that time to now. And the loss she feared was only realized when she sold. Otherwise, since she just had them as investments anyway, it didn’t matter what she paid. It was the cash flow that mattered.

I used that as an example of what not to do in the coming boom years between 1997 – 2007. Everyone laughed. We’d never sell or walk away from our houses just because the market went down, they vowed.

Funny how times have changed.

Anyway, this building that sold for $40 million was sold for $1 million in the Resolution Trust days. The building had no tenants and in fact needed another $1 million or so to even finish it. The building became my sword in the rock. If I had that opportunity, would I have taken it? Would I have risked $2 million with NO cash flow in place when everyone said it would take forever for the market to recover?

And then it dawned on me, then is now. There are opportunities like that everywhere. Will you make $38 million in 10 years with just one buy? It’s hard to say. Will people walk way from potentially cash flowing properties because they look like they have gone down in value? Well, that one we know – absolutely yes.

Then is now. What will you say 10 years from now about what you did today?

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